Is China using 'debtbook diplomacy' to achieve its strategic aims?
18 May 2018
BEN WESTCOTT | CNN | Edited
HONG KONG - The Chinese government is leveraging billions of dollars in debts to gain political leverage with developing countries across Asia and the Pacific, a new report presented to the US State Department claims.
The independent report, written by a pair of Harvard University scholars, identified 16 countries targeted by the Chinese government for "debtbook diplomacy.
According to the report, in some cases the huge debts grow to a size too large to pay back, allowing Beijing to leverage the loans to "acquire strategic assets or political influence over debtor nations."
This could allow the Chinese government to extend its influence across the Indian Ocean and the Pacific, encircling India and Australia as well as helping to consolidate its position in the South China Sea, the report said.
Last month, Australian prime minister Malcolm Turnbull said he viewed "with great concern" any foreign military bases being built in the South Pacific, following reports Beijing was in talks with Vanuatu to host Chinese forces.
According to the new report, Vanuatu, just 2,500 kilometers off Australia's coast, has taken at least $270 million in Chinese loans in the past decade, worth 35% of its GDP. Both China and Vanuatu have strongly denied there were ever discussions over a People’s Liberation Army military presence on the island.
A US State Department official told CNN it encouraged China to promote and uphold internationally accepted best practices in infrastructure development and funding.
"We need to ensure recipients have options that allow them to retain their sovereignty and future control of their economies," the official said.
According to the report, there are a number of ways in which Beijing and state-owned enterprises leverage debt to help China's strategic aims.
In one case, infrastructure built with Chinese loans, has then been leased back to Chinese interests to pay off the original debt.
In 2017, an unprofitable Sri Lankan port built with billion-dollar loans from Beijing was leased to Chinese state-owned firms for 99 years to help repay the country's debts.
The report's co-author Sam Parker said there were concerns these ports could be used by Chinese naval vessels once they were under state control.
"There's definitely the potential where they can have it go from commercial, to occasional visit, to logistics, to humanitarian and then maybe finally a military base," he said.
In the Pacific, nations such as Vanuatu, Papua New Guinea and Tonga all owe the Chinese government billions of dollars in loans, encircling US allies Australia and New Zealand.
Chinese foreign ministry spokesman Lu Kang said China's foreign policy was based on "mutual respect and win-win cooperation."
"As for other parties, they shouldn't be presumptuous based on their own views -- nor should they assume economic cooperation between developing countries always have ulterior political motives," he said.
Many of the loans are being given out as part of China's signature Belt and Road infrastructure program, which gives loans to developing nations to fund ports, railways and other initiatives across Asia, Europe and Africa.
Report co-author and Harvard scholar Gabrielle Chefitz said the loans under the Belt and Road plan, as well as China's other development grants, take a very different form to previous US programs such as the Marshall Plan.
"The Marshall plan was largely grants whereas China is giving this money and expecting something in return," she told CNN.
"And because of the relationship between the state and these companies, it's able to get returns which aren't wholly economic, which are strategic in nature ... like a veto in ASEAN, like a port, or a vote at the United Nations."
But Merriden Varrall, the Lowy Institute's East Asia Program director, told CNN there was still a lack of evidence as to how China was utilising its loans around the region.
"Nobody knows what China's motives are, presumably they're not simply altruistic, Australia's interests in providing aid and investment are certainly not purely altruistic either," she said.
Especially interestingly in view of the cancellation of the Iran anti-nuclear deal by Trump is the news that China is building Indian Ocean military base at Jiwani in the Gulf of Oman (reported at www.washingtontimes.com).
Would USA demand China agree to stop oil flows from Iran?
This new base along with those in Sri Lankan and at Djibouti are all necessary to secure its lifeline to its energy supplies.
Of course the USA is apparently still in hock to China by over trillion and that can be of concern in any trade war resulting from sanctions busting scenario.
Times they are a changing and not always for the better.
Posted by: Arthur Williams | 18 May 2018 at 08:55 PM
Globalism is the name we give to a system whereby corporate capitalism can run wild and free wherever it chooses.
This means that capitalists are free to exploit developing countries as a source of cheap labour to extract resources or manufacture consumer products which can then be sold very profitably in the so-called developed world.
Thus far, fuelled by astronomical levels of debt, this has all gone quite well.
Countries like South Korea, China, Thailand, Malaysia and so on have seen marked lifts in GDP, reductions in poverty and the rising of embryonic middle classes.
The downside has been felt in the so-called rust belts of Europe, the USA and Australia.
Not surprisingly, the losers in this process are embittered and resentful. Queue the rise of populists like Donald Trump and their fundamentally anti-globalist message.
China has so far managed this process pretty well. It has deftly ridden the globalisation boom and bought, borrowed or simply stolen the intellectual property and technology required to become what, in the 19th century, would have been described as a "first class power".
Taking a leaf from the classic democratic play book and with a nod to its long history as an imperial power, it has embarked upon a process of buying influence amongst those states whose ultimate role is to be that of vassals and tributaries.
This is what the belt and road philosophy is really about.
In the not too distant future, the debt fuelled expansion of the world's economy will reach a point where it collapses under its own weight. Who knows what the trigger for this will be? History suggests that the trigger will be entirely unforeseen by all but a few who will, or course, profit mightily from their insight.
The only certainty for PNG and many other heavily indebted nations besides is that their role be that of victims.
Beware Greeks bearing gifts is an old but apt adage that can be usefully applied to Chinese offers of largesse.
But I am what is called a "perma-bear" or glass half empty kind of guy, so urging caution is dismissed as undue pessimism. After all, what could possibly go wrong?
Posted by: Chris Overland | 18 May 2018 at 01:45 PM
Tradition and history often dictates the shape of mindsets engaged in debate.
It should not go unnoticed that for China to succeed in its alleged initiatives (Belt and Road etc) the inputs of globalism should be recognised.
The world is moving toward forms of governance and control resisted by traditionalists but subscribed to by devotees of One Worldism.
It's the likes of George Soros and his ilk who openly influence developing "Open Borders" strategies that flies in the face of preserving sovereign borders and the relative stability derived thereby.
China could not have initiated their endeavors without the cooperation and participation of Western business and political interests.
Posted by: Robin Lillicrapp | 18 May 2018 at 08:38 AM